A CD with a face value of USD50 million and a coupon of 4.50% was issued at par for 90 days and is now trading at 4.50% with 30 days remaining to maturity. What has been the capital gain or loss since issue?
A) +USD 373,599.00
B) +USD 186,099.00
C) -USD 1,400.99
D) Nil

Question

Quizplus · Accepted Answer

The CD was issued at par, so the initial investment was USD50 million. The coupon of 4.50% would provide a quarterly interest payment of USD562,500.

Since the CD is trading at 4.50% with 30 days remaining to maturity, there has been no change in the yield since issue. Therefore, there is no capital gain or loss to be realized.

At maturity, the investor will receive the face value of USD50 million plus the final interest payment of USD562,500, for a total return of USD50,562,500.

A CD with a Face Value of USD50 Million and a Coupon